European Union: Fiscal breaking point coming in fall
Failure of European Union will reduce global trade
Photo: Bruce A. Stewart
By Bruce A Stewart
The European Union is in big trouble. Picture one in four people out of work. No job, no prospects of one. That’s Great Depression levels of unemployment.
That’s also sunny Spain and Greece, these days. Both also have one in two recent graduates unable to find even a job flipping burgers or digging ditches.
Italy, Portugal and Ireland are not far behind. Ireland’s official number of fifteen per cent unemployment is masked by yet another wave of Irish emigration — over half a million Irish have left in the past three years, to elsewhere in Europe, to Australia and New Zealand, to Canada and the United States. Add them back in, and you’re looking at unemployment above twenty per cent there, too.
Young Greeks, young Spaniards, young Portuguese and young Italians are trying to leave their countries, too.
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Meanwhile, Spain and Greece can’t borrow money at less than 7.5%. Remember these are all in the Eurozone, where the official lending rate is 0.75%. But the market won’t lend at anything less than ten times that — and rising. Italy’s not far behind at 6.4%.
So, in the midst of a Canadian summer, what does this mean to us?
Societies have crashed into riots in the streets, governments fallen, and wars broken out for less.
Greece needs more money just to stay afloat. Yet the Greek people — unlike the Irish, who’ve gone along with slashed social programs, tax increases, and the rest of a deep austerity program — have said “enough” to austerity. Tax revenues in Greece continue to fall. The Greeks want their government to renegotiate with the rest of Europe to get terms they can live with. Europe has said “crack the whip harder or no more money”.
The money runs out in mid-September. Salaries, pensions, social assistance all face a dim future.
Meanwhile, in Germany, ordinary people are digging old Deutsche Marks out of their drawers and starting to use them in commerce. Germany, unlike most other European nations, never officially cancelled their former currency: the DM is still legal tender (French francs, Italian lire, etc. are not). So far DM are still being accepted at the official Euro exchange rate by merchants. The day Germans start to get a better price paying in DM than in Euro the jig is up for the common currency.
Germany — which spent nearly a decade getting its fiscal house in order after its deficits ballooned with the 1990s absorption and “upgrade” of the former East Germany — is loathe to do a second round of either massive deficits (the pay later plan) or austerity (the pay now plan) to bail out the other countries in the Euro zone.
Germany also worked on its competitiveness during that period, which is why it’s the world’s third largest exporter — and almost ready to pass the United States to move into the second spot. (Anyone who thinks starvation wages and miserable working conditions are an essential to economic success had better look hard at Germany. Quality products, high productivity and industrial innovation are more important.)
None of the countries in trouble bothered to do any of this.
Now the trap is springing. Austerity isn’t viable. Leaving the euro and devaluing won’t help, either: that’s a way to use price inflation to squeeze the economy. The European Union — currently the world’s largest economy — is about to transform, and not in a good way.
Iceland (closely associated with Europe but not in the European Union) is the only country that has recovered. Of course, it simply defaulted, let its rotten banks collapse, took the pain hard and fast, and got it over with.
For the Mediterranean countries, it’s too late for that, too.
Expect blood in the streets there this fall — and reduced global trade.
Category: Opinion
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